BT splits but experts question whether it is enough

There are two splits in BT, one divides its businesses, the other its attitude

Analysts and experts are cautiously welcoming BT's announcement it is to split Thursday, but point out its radical restructuring will need to be accompanied by a seismic shift in attitude.

Essentially BT has decided to create a new network company, NetCo, which will operate autonomously. Its other divisions, BT Ignite (which controls BT's wholesale business), BT Wireless, BT Retail, its yellow pages and e-commerce wing Yell and broadband division BTopenworld, will continue to operate as separate entities while sharing what the telco describes as "synergies".

BT plans to spin off at least a quarter of Yell by the end of the year with BT Wireless to follow in the second half of next year. Both NetCo and BT Ignite will be in a position to float by the end of 2001.

IDC analyst Jill Finger believes the need to sell off assets is the key reason why BT has undertaken such a restructuring. "One of the main drivers of this is the crushing load of debt BT carries," she says.

As a response to debt, Finger believes the split makes sense, and she can see benefits too for BT's more forward-thinking divisions. "By separating the management of BT, wireless and Internet will benefit as they won't be hindered by the slower growing voice telephony service," she says.

One of BT's fiercest critics in the past, Internet service provider AOL, hopes that the restructuring will make it easier to work with the telco in the future. "From our perspective we want to work with BT and historically that has been difficult because BT does not have the same focus on the consumer as we do. What would delight the ISP industry is to work with BT as a partner," says an AOL spokesman.

AOL questions whether a physical split in the businesses of BT will be mirrored by a change in attitude. "To what extent is there going to be a cultural shift?" asked the spokesman. "The fundamental question is whether BT is now going to move in Internet time or continue to work in BT time."

Announcing the changes Thursday, chief executive officer Sir Peter Bonfield made many references to just such a shift. BT, he claimed, now boasts a young team including for the first time ever a vice president aged 26. Describing himself as a "decentralist", Bonfield admitted that BT could no longer continue to function in a centralised way.

There would be a "significant" change in "style and nature", Bonfield said. "I can assure you that in a year to 18 months BT will look and feel quite different to how it does today," he concluded.

AOL remains sceptical. "There is a lot of effort inside BT to act like a 21st century communications company but it is trapped inside the body of a 20th century telecoms company," says the spokesman.

Yankee Group analyst Keith Nallinson regards the restructuring as something of a fudge. "It is not too radical and not too conservative," he says.

While it goes nowhere near as far as AT&T's four-way split, Nallinson thinks creating a separate network business is a brave move on BT's part. "It allows BT to release its entrepreneurial spirit and taking the network company out is a radical piece of surgery." He says. The split will mean other parts of BT, like BTopenworld, will be able to shop around and will no longer have to rely on the parent company for infrastructure.

Such splits have become rather fashionable in the new economy, Nallinson says, and while BT may be leading the pack among European telcos, the move is unlikely to solve all its problems. "There was a pressing need for such a move but as to whether it will repair all its ills, it raises as many questions as it answers," Nallinson says.

Oftel also remains typically cautious about what impact the decision to split would have on consumers and UK telecoms regulation. "We have to go through the plans in detail before we can say," says an Oftel spokeswoman. "We may need to go out and consult industry and consumers about any changes to regulation."

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